Financial History Issue 131 (Fall 2019) - Page 18

Joe Ricketts in his St. Bernard’s Academy yearbook photo. worked again. When I knew him, he spent the day in his rocker, looking out the window. From then on, my mother was very, very conscious of the social standing her family had lost, and she was bound and determined to get back to where they had been. When she left the house, she was always dressed properly—no one but us kids ever saw her dressed for houseclean- ing. In church, we all had to be neat and clean, my younger brothers and me in our sport coats and freshly ironed shirts. My parents made it very clear to me: If you wanted what she called a nice life, you had to make it yourself. You had to work hard every day, and when you got what you were after, you had to keep working hard because you could lose it all. And so, I understood early on that I had to suc- ceed on my own. Looking back, I see that I made that success my life’s mission. I was fortunate to live in the United States, where we had free enterprise. The opportunity came in the 1970s when the government deregulated stock commissions. For over 180 years, the com- missions received by stockbrokers had been fixed by the predecessor of the New York Stock Exchange. The buyer and seller were not allowed to negotiate the fee. That might have made sense when there were few trades that happened slowly, but with the rise of mutual funds and other changes that increased and sped up trading, these fixed commissions came to the attention of regulators. Prominent economists sug- gested that reduced commissions would increase trading and stimulate the econ- omy. The government made the decision to phase out the fixed commissions, with the big change coming in May 1975. I was a stockbroker in those days, work- ing for Dean Witter. Most brokers I knew believed that the rule changes wouldn’t hurt us as long as we all kept charging the same commissions we had always charged. That didn’t make sense to me. I had observed small businesses through- out the region, and it seemed there was always someone willing to lower prices as a way to win customers. One of my col- leagues, Bob Perelman, had owned and run a grocery store, and he said that when he introduced lower-cost products, what we called “plain label” canned goods, the name brands lost customers to the gener- ics. Now, Bob and I were coming to the same thought: Why should we stay at a full-service broker and lose the customers who want a lower price? Why not become the new brokers who get to welcome those customers? How exactly would we do it? What steps would it take? We had no idea. We were so unprepared, so inexperienced, so just plain stupid that it is hard for me now to believe it. To begin with, we didn’t know what would happen after a customer called us and requested a trade. Somehow, the buyer’s money got to the seller, and the seller’s stock certificate (a physical 16    FINANCIAL HISTORY  |  Fall 2019  | piece of paper with monetary value) got to the buyer, and records of this trade were provided to the buyer, the seller, the stock exchange and the government. That was called clearing. We didn’t know the first thing about it. “We knew bubkes,” Bob would say later. “We knew bull. I knew nothing, and Joe knew less.” We asked the Omaha National Bank Trust Department to do our clearing for us, but they refused. They didn’t know what clearing was, either. By chance, they referred us to a small storefront firm across the street that underwrote bonds and also had the licenses you needed to sell stocks. Their bond business was doing poorly, so we offered to buy them out. Cliff Rahel, who ran the small firm, didn’t want to sell, but he said he might be willing to partner with us. He liked the idea that we would bring new energy and, especially, new money into his company. In those days, it was much harder to come by venture capital than it is today. At first, he suggested that he would put in $25,000 to recapitalize, and that Bob and I together could put in another $25,000, making him the senior partner and Bob and me the junior ones. We said no. We appreciated that he had knowledge, licenses and connections that we needed, but he couldn’t be above us. “We’re going to be equal partners,” we told him. “If you can’t do an equal partner arrangement, we’re not interested.”